The Irish Farmers Journal understands that the board of Farmer Business Developments, the original founder of the insurance company, has agreed to buy out FBD Holdings’ share of the property and leisure joint venture.

Following negotiations on Monday night that went into the early hours, €48.5m is believed to have been agreed between the two parties to acquire the remaining 50%.

Farmer Business Developments is paying close to the book value for the 50% to put more cash into the insurance business. No-one from Farmer Business Developments was available for comment and it is understood that an EGM will be necessary to secure shareholder approval.

It is now understood that a total capital injection of up to €100m could be required to ensure that Holdings can operate and provide a buffer under new solvency rules which come into place in January. The group’s investment in the JV represented capital that was not in a form recognised by the regulator.

In recent weeks, questions had been raised around the valuations of the hotels. However, it would now seem that the valuations are a minor issue and focus has shifted back to the question of whether €50m will be enough to capitalise the insurance business.

Should this deal play out, Farmer Business Developments, which has effectively invested €110m in the hotels business since 2011, will end up with €55m of debt, €35m of which will need to be raised to fund this transaction.

Problems

Even though this deal would go some way towards raising the capital required, it is still unclear as to the extent of the problems at FBD Holdings. Should further capital be required, it would most likely be sourced on debt markets by issuing a subordinated bond, according to industry sources.

Due to the challenged market, many insurers have bolstered their capital levels through this method in the past 18-24 months. Shares hit a low of €6.70 on Wednesday.

With interim results due on 24 August, it is likely that FBD will announce a plan to recapitalise the business, which will provide clarity to investors who have been left in a vacuum since the departure of the CEO two weeks ago.